Facebook’s IPO is overpriced and over-rated, David Olive writes. Here’s why it isn’t likely to be a second Google despite the hype.

Facebook IPO: An investor holds prospectus explaining the Facebook stock after attending a show for Facebook Inc's initial public offering at the Four Season's Hotel in Boston, Massachusetts May 8, 2012. Facebook Inc CEO Mark Zuckerberg is on a roadhsow to convince investors to buy in. The Toronto Star's David Olive has some reasons not to.

With Facebook hurtling toward a spectacular initial public offering in the $100-billion range May 18, it’s unfortunate so many money managers loath to be on the sidelines for a milestone IPO will snap up over-priced shares of the social-networking giant.

Yes, Facebook does reach about 13 per cent of the world’s population. And it has potential to grow into an e-commerce Leviathan, once it refocuses on selling stuff from its preoccupation thus far with becoming ever more addictive. (Sorry, refining its “customer experience.”)

And yes, Google Inc. went public in 2004 at what then seemed a ludicrous price. Yet Google stock has since leapt by 617 per cent.

Of course, there will be holdouts. The famously tech-averse team of Warren Buffett and Charlie Munger at Berkshire Hathaway Inc. will take a pass on the new century’s second monster IPO, after Google.

Munger is turned off by not only the sky-high valuation that Facebook’s executives and investment bankers are trying to justify in their pre-IPO road show that began this week. Munger plain doesn’t like the Facebook concept.

“I don’t want people putting all this personal stuff into a permanent record when they are 15 years of age,” Munger said last weekend at Berkshire’s most recent “Woodstock for Capitalists” (Berkshire’s annual meeting).

“I think it’s counterproductive. I just basically don’t like it.”

Actually, there’s lots not to like about this IPO besides Facebook’s relentless pursuit of new ways to seduce civil engineers, dental hygienists and 10th graders to shed their privacy in front of 900 million users.

To merit its stratospheric initial offering price, Facebook must at least qualify as a growth company. The Harvard dorm start-up, now ensconced in Menlo Park, Calif., looks to user growth for most of its revenue. But user growth has come close to plateauing. Monthly membership growth is down from 178 per cent in 2008 to 1.7 per cent last month.

Facebook now needs to start extracting revenue from existing users, most likely with advertising and merchandizing. But it has scant expertise in those realms. Cnet, the authoritative tech journal, reported May 1 on the frustrated ad agencies eager to bolster Facebook’s coffers but unable to get the firm to return their calls.

Worse, a multitude of others have the skills Facebook will need if it is to diversify its sources of revenue growth. The Internet already boasts a hyper-competent general store, called Amazon.com Inc. And there are proficient online vendors of everything from dating services for mixed-race transgender companions to silk glove-box linings for vintage Jags. The barriers to entry in Web merchandizing are very low.

Facebook’s offering price, as noted, is breathtaking. The triopoly of giant Canadian life insurers, with revenues of $104 billion, are collectively valued at $57 billion. Facebook, with revenues of $4 billion, is expected to boast a post-IPO value of $96 billion or so.

Finally, there’s the dealbreaker for corporate-governance types. Co-founder Mark Zuckerberg will own 18.4 per cent of the post-IPO Facebook. But a dual-class share structure on which Zuck insisted means the 27-year-old CEO will command 57.3 per cent voting control.

What we learned from The Social Network is that Zuckerberg can be an anti-social control freak. Sure enough, he is reported to have not bothered informing his board about the eye-popping $1 billion he planned to spend on buying the photo-sharing app Instagram Inc. until the deal was announced.

Instagram is a two-year-old startup with 13 employees. Little is known of the Zuckerberg’s strategic vision. But we are getting a handle on how he valuates takeovers. For Instagram, he paid a handsome $77 million per employee – an unhappy reminder of John Roth’s manic dealmaking at the late Nortel Networks Corp.

Dual-class share set-ups have made a mockery of “shareholder democracy” for decades. But in the tech world, Zuckerberg’s absolute control is unprecedented. He can launch a Facebookie betting shop and recruit Bernie Madoff as his off-site CFO, and simply replace a board that dares balk.

It’s the nature of founder-CEOs that their entrepreneurial gifts aren’t matched by managerial ones, as we’ve seen at BlackBerry maker Research in Motion Inc. Even Bill Gates, by his own confession, missed the significance of the Internet. Otherwise, Microsoft Corp., a chronic also-ran in search, would have launched what’s now Google.

So the $96-billion bet May 18 is on young Mr. Z, not Facebook. Unlike Steve Jobs at Apple Inc. or Jerry Yang more recently at Yahoo Inc., Zuckerberg can’t be pushed out of his firm even if he falls into the habit of opening staff meetings by setting his hair on fire.

Only if Zuck’s absolutism extends to absolute genius in running a business is Facebook’s offering price remotely appealing.

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